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On August 26, I made a video report explaining why this correction would evolve to look a lot like the 2011 two-month event. That “roadmap” has turned out to be very accurate.

I advised then for investors to be ready to “buy the recession fear” anywhere near S&P 1800. So far in this correction of 2015, volatility as measured by the VIX index has been a bit lower. The reason is that the recession fear is lower.

But valuations are higher much higher now. In 2011, I called the zone between S&P 1100 and 1200 “an extreme value area” because the index was trading at less than 12 times forward EPS estimates of $100. 

Now at S&P 2000 we are back to trading at nearly 17X 2016 estimates of $120. That's rich while headed into an earnings recession.

And I think it means the market will probably experience another leg lower until we have more solid earnings, guidance, and economic data about the manufacturing sector to make us believe otherwise.

Right before I made the attached video this morning, Walmart (WMT – Analyst Report) warned about earnings and the stock tanked nearly 10% on heavy volume.

Here are some other signs I'm worried about from my morning note to clients…

I've Seen This Movie Before

I track institutional buying in equities for a living. And I'm getting a lot of disturbing clues lately while the market appears tame. Like Scwhab's Liz Ann Sonders going “neutral” on US stocks. Or Jim Paulsen of Wells Fargo saying that the “valuation re-set” isn't over.

And let's not forget HSBC's head of global allocation dropping their weighting in the S&P to 0% from 5%!

My bottom line: Clearly, these big strategists see different catalysts now than your average long-only manager who was buying under S&P 1900 two weeks ago. And I still believe caution is warranted until we hear from a lot more companies about their outlook for the economy and business.
 
Believe me, while the market sits quietly, the big guys are quietly buying more puts.

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